Investors may be thanking market regulator Sebi for doing away with entry load on mutual fund (MF) investment, but industry players believe the move may adversely affect them, as they fear distributors would push unit linked insurance plans (ULIPs) to earn better commission.
ULIPs offer attractive front-end commissions to agents. However, independent financial advisors believe that though there is a possibility of some distributors favouring ULIPs in the short-term, the new directive would be beneficial for both the industry and investors in the long run.
"This clearly puts the insurance industry in an advantageous position. Why would a distributor sell MF schemes where he earns nothing, when he can sell a ULIP product and get a very high commission," asks an industry player.
In fact, this was the pet theme at a CII-organised MF summit recently, where the Association of MFs in India (AMFI) chairman raised the issue in the presence of Sebi chief C B Bhave. However, the Sebi chief made it clear that the industry should try to convey to the investors that lower commission MF scheme would help them earn more. With no entry load, investors stand to gain more, as the impact of it on long term investments would be huge because of the effect of compounding rate returns, Bhave said.
Independent financial advisors say the MF industry's fears are exaggerated. "If at all there is an adverse impact, it will be only in the short-term. Distributors will not survive selling only ULIP products. It is the business model of banks where they want to earn more front-end commissions by selling insurance products," says Gaurav Mashruwala, a certified financial planner.
Agrees Devendra Nevgi, another financial expert. "It is well known that ULIPs have much higher commission rates than MFs. Some people have been pushing them aggressively already," he says. Both believe the new Sebi directive would improve the quality of distributors in the country.
ULIPs offer attractive front-end commissions to agents. However, independent financial advisors believe that though there is a possibility of some distributors favouring ULIPs in the short-term, the new directive would be beneficial for both the industry and investors in the long run.
"This clearly puts the insurance industry in an advantageous position. Why would a distributor sell MF schemes where he earns nothing, when he can sell a ULIP product and get a very high commission," asks an industry player.
In fact, this was the pet theme at a CII-organised MF summit recently, where the Association of MFs in India (AMFI) chairman raised the issue in the presence of Sebi chief C B Bhave. However, the Sebi chief made it clear that the industry should try to convey to the investors that lower commission MF scheme would help them earn more. With no entry load, investors stand to gain more, as the impact of it on long term investments would be huge because of the effect of compounding rate returns, Bhave said.
Independent financial advisors say the MF industry's fears are exaggerated. "If at all there is an adverse impact, it will be only in the short-term. Distributors will not survive selling only ULIP products. It is the business model of banks where they want to earn more front-end commissions by selling insurance products," says Gaurav Mashruwala, a certified financial planner.
Agrees Devendra Nevgi, another financial expert. "It is well known that ULIPs have much higher commission rates than MFs. Some people have been pushing them aggressively already," he says. Both believe the new Sebi directive would improve the quality of distributors in the country.
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Dear all,
SEBI has come up with following ruling: (vi) Transparency in payment of commission to Mutual Fund distributors
There shall be no entry load for the schemes, existing or new, of a Mutual Fund. The up-front commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors.
If the SEBI chief really is interested in Greater Retail participation, then he should encourage retail investors. For this to happen, the IFAs are vital cog in the wheel. If he kills the IFAs by cutting their paltry commission, there will be NO ONE to sell the Funds to the Investors.
There will be only Insurance agents out to make a Killing with their ULIPs and getting 40% commission.
Does SEBI has no Guts to go after the Insurance Agents because the Insurance Agents Lobby is strong???
Already Mutual Funds are on a backfoot because of No celebrity Endrosement, Low Paltry Commission, Stringent Disclosures. The Insurance is not even having to face 10% of this music by SEBI. After all, Insurance ULIPs are the High Commission, Low Transparency version of the Mutual Funds. As an expert said recently "The IRDA is simply less interested in the well-being of the insured and more in the well-being of the insurers."
Will someone point this discrimination to SEBI??
SEBI should concentrate on these Insurance Agents who get 40% commission rather than killing the IFAs who get a paltry 2% commission.
I think SEBI chief has relatives who are Insurance agents who thrive in conning and mis-sell ULIPs. He wants them to thrive and is doing these small ridiculous things.
Regards,
Srikanth Shankar Matrubai...
http://goodfundsadvisor.blogspot.com
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